It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
I hope everyone is enjoying their weekend. Well … summer is officially here — and to kick it off, I’ll be busy finishing up the refurbishment of my old backyard fountain.
Okay … now let’s get this show on the road.
The four most dangerous words in investing are: ‘This time is different.’
— Sir John Templeton
The key is not to predict the future, but to prepare for it.
— Pericles
Credits and Debits
Credit: Ever since the Fed ceded monetary policy to Wall Street earlier this year, stocks have been on a tear. This week the Fed reassured the market that they had no intention of doing anything that would make ’em mad. As a result, the Dow is in the midst of its strongest June performance since 1938, the S&P 500 is seeing its best June since 1955, and the Nasdaq is having its biggest June since 2000. Imagine that.
Credit: Yes, equities continue to be propelled by the Fed’s recent decision to reconsider lowering interest rates and implement future rounds of quantitative easing (QE), but stocks aren’t overvalued by any measure. Oh wait …
How expensive are equities? Price/tangible book at 10.8x is nearly double the historical norm, a record high that is 24% above the dotcom bubble peak and represents a 3 SD event. In a word – froth. pic.twitter.com/NlnUtpz5Pi
David Rosenberg (@EconguyRosie) June 21, 2019
Debit: Despite the stock market’s relentless journey toward the sun, a nationwide Bankrate survey found that 48% of Americans who were adults when the Great Financial Crisis began in December 2007 have seen no improvement in their financial situation. Huh. If that’s the best results the longest unbroken economic “recovery” in US history can deliver, I hate to see what the next downturn has in store for us.
Debit: Meanwhile, the Wall Street Journal reports that, “Political support for taming federal debt has melted away, and the US is testing just how much it can borrow.” Apparently, most American voters aren’t concerned either. At least that’s what House Finance Committee chairman John Yarmuth thinks:”There haven’t been any cataclysmic consequences, so why worry about it?” he crowed this week. At least not yet, Congressman.
Credit: As David Stockman notes, such a cavalier attitude,”amounts to one epic free lunch proposition: Namely, that no one needs to save or defer gratification because the central banks can always print enough new credit to monetize the public debt and keep interest rates aberrantly and irrationally low, (thereby) setting up the system for a thundering day of reckoning.” Sheesh. Talk about a party pooper.
Debit: To drive home his point, Stockman observes that, after adjusting for inflation, “Today’s net national savings level is 50% below where it was 20 years ago. The radically (low) bond rates generated by massive central bank debt monetization have fostered the foolish belief that the debt is benign and that borrowing trillions at the top of the business cycle is no sweat.” After all, what could go wrong? Hey … let’s ask this guy:
Debit: By the way, the Bank for International Settlements (BIS), warns that those low rates have created an epidemic of unprofitable zombie firms which can only survive by repeatedly refinancing their existing loans. In 1980 zombies made up just 2% of all publicly traded companies in the US; today, it’s 16%. Worldwide, the number is 12%, including this foreign zombie corporation that designs aftermarket electric car windows:
Debit: Of course, when this emergency central bank stimulus was initially pumped into the economy’s veins, the Fed promised that they would trim their balance sheet, and rates would return to normal. Ten years later, stocks are at record highs, unemployment is at an all-time low — and yet the Fed still hasn’t normalized interest rates or their balance sheet. In fact, they’re hinting they may lower rates again! What? If not now, when?
Credit: According to financial analyst Dave Kranzler, “Any attempt at holding off the economic catastrophe creeping into view would require massive money printing. But given that some Fed members consider a $3 trillion balance sheet to be normalized, I’m not sure to what degree more money printing will save the economy.” I’m sure, Dave; fleeting relief at best — while simultaneously hastening the dollar’s demise.
Credit: Of course, decades of financial malpractice by the Fed has set the stage for an awful reckoning that it clearly can’t forestall much longer. As Alexander Trigaux notes: “Instead of allowing the free market to do what it does best and let failing companies fail, the Fed has decided to play zombie nursemaid yet again. A market in which success and failure is rewarded is the last stage of crony capitalism at its worst.”
Credit: Raul Ilargi Meijer goes one step further: “We’re so far removed from capitalism and free markets, that it’s pathetic. Our economic system has been destroyed by central bankers who pretend they’re saving it when, in fact, they’re only protecting commercial banks and rich ‘investors.’ We let the central banks take over; and it’ll be very hard to take back power.” True. But for the sake of our kids and grandkids … it’s a vital necessity.
By the Numbers
Forbes annual Top Earning Athletes list for 2019 just came out. Here are a few of the more-notable nuggets:
$127,000,000 Annual income for the athlete at the top of the list: FC Barcelona soccer star, Lionel Messi.
2 Soccer players to ever top Forbes’ list, which was started in 1990.
10 Total number of sports represented on the list.
35 Players on the list from the NBA; that’s more than any other organization.
19 Players on the list from the NFL; the next-best-represented sport.
25 Countries represented on the list.
62 Athletes from the US on the list. (The UK was second, with 5)
31 Average age of the athletes on the list.
49 Age of the oldest athlete on the list. (Golf star, Phil Mickelson.)
1 Women who made the list. (Tennis star, Serena Williams, who earned $29 million.)
Source: Forbes
Last Week’s Poll Results
Prenups: Good idea?
- It depends. (50%)
- Yes (35%)
- No (14%)
More than 1400 Len Penzo dot Com readers responded to last week’s question and half of them say getting a prenup is not always a black-or-white decision. I tend to agree with that.
If you have a question you’d like me to ask the readers here, send it to me at Len@LenPenzo.com — and be sure to put “Question of the Week” in the subject line.
The Question of the Week
[poll id="273"]
Useless News: Quick Questions
A Texan, a Venezuelan, and a New Yorker go into a restaurant in London. Before they could order, the waiter said, ”Excuse me, but if you want a steak tonight you might not get one as there is a shortage due to the mad cow disease.”
The Texan asked, ”What’s a shortage?”
The Venezuelan said, ”What’s a steak?”
The New Yorker said, ”What’s excuse me?”
(h/t: Salamander)
Other Useless News
Here are the top five articles viewed by my 26,553 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- How I live on Less than $40,000 Annually: Kai from California
- 5 Ways Intentional Obsolescence Is Robbing You Blind
- 18 Amazing Facts You Didn’t Know About Credit Cards
- Gas or Charcoal Barbecues: Which One Is More Cost Effective?
- Save Money Faster By Turbocharging Your Change Jar
Hey, while you’re here, please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
2. Make sure you follow me on Twitter!
3. Subscribe via email too!
And last, but not least …
4. Consider becoming a Len Penzo dot Com Insider! Thank you.
Letters, I Get Letters
Every week I feature the most interesting question or comment assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
After reading my article highlighting 15 reasons why only suckers buy waterbeds, Billy replied to my assertion that waterbed sex is overrated:
Sex? What’s that? Seriously, it was good for me until I kicked her out, but for good reason.
Your comment reminds me of the guy whose girlfriend wanted to make him have sex on the hood of her Honda Civic. He refused. He told her if he was going to have sex, it was going to be on his own Accord.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Hi Len,
As long as the stock market keeps going up I don’t think most people will ever notice the rot in the system. I’m keeping my head down and continuing to stack silver. Have a great weekend!
Sara
Thank you, Sara!
Anybody know what SD means in that tweet up above? SD means South Dakota to me, but that doesn’t make sense!
Alan, SD in this case stands for “Standard Deviation” — so three standard deviations. In statistics, three standard deviations, also known as 3-sigma (sigma, for the greek letter used to represent standard deviation) from the mean accounts for 99.7% of all probabilities for normally-distributed variables and 88.8% of all non-normally distributed variables.
Suffice to say it means anything falling outside of 3 standard deviations is a rare event.
Well, as a three- standard deviant, I guess I’m a rare event …
Here are some examples of bogus companies that wouldn’t exist in normal markets. Tesla, Blue Apron, Snapchat, Deutsche Bank, Twitter. During the next crash malinvestments like those I just mentioned will all be wiped out, along with anyone stupid enough to invest in that crap.
Good comment, Les. Fake money begets fake companies with unsustainable business models.
“48% of Americans who were adults when the Great Financial Crisis began in December 2007 have seen no improvement in their financial situation.”
How you were financially and whether you were satisfied with how you were in 2007 makes a difference now.
For those of us who had stabilized our lives as independently of the financial “system” as possible, “no change” is our desired condition.
Investing in real things that can be enjoyed during acquisition and throughout life, as opposed to papers in a drawer, like stocks and bonds (to use your famous phrase), will do that.
By the way … did you notice one of your recent articles entered the Top 10 “popular now” posts this week?
No, I didn’t. Thanks for the heads-up!
We standard deviants need all the kudos we can get …
The biggest zombies of all are the sovereign nation zombies and their central bankers.
It’s more than that. Very few people in their 20s and 30s know how to save, delay gratification or make do with what they already have.
Around 1981 or 1982 there was a shift in attitude regarding the use of credit to accumulate things. Prior to that, people saved for almost everything and the use of credit to live beyond one’s means was somewhat stigmatized. Today, it is the opposite. Saving has become a lost art. A decade of central bank near-zero-interest-rate policy has delivered the coup de grace.
Surprised you didn’t mention gold topping $1,400.00 this week. Looks like sentiment is changing.
Yeah, Steve … gold hit a six year high this week. Still … it is important to not lose sight of the fact that the main reason to purchase physical gold (and silver) is for long term savings and wealth insurance — not investing. That being said, I suspect both silver and gold will be seeing some significant gains in the coming months (and years), as the central banks try to keep the dying debt-based international monetary system they created alive.
Len, I would say that Gold is BOTH for savings & wealth insurance AND investing as an asset class component of one’s portfolio.
Go over to portfoliocharts.com and they backtest all the popular portfolios and take a look at a portfolio called the “Golden Butterfly”. They also have all the more traditional portfolios as well, such as the ‘ol 60/40.
I hear you, Kid. Of course you can invest in gold and silver. Many people do it — and now that, after six long years, it has finally broken through $1360 resistance it shouldn’t have much trouble getting to $1550 or $1600 (after falling back and giving a final kiss goodbye to the previous resistance level). That being said … I stick to my thesis that the main reason for buying gold and silver is wealth insurance. That’s not to say that when the dollar finally does melt down, and that insurance pays off, gold and silver will feel like an incredible investment for all those who hold the physical version of it.
As soon as rates go back to 0%, the Fed will have only one bullet left to handle all the debt. Inflation.
We’ll see, Sam. It will be interesting to see if they resort to negative rates.
Time to face facts. The Federal Reserve can’t paper over the failure of 2008 forever. You can’t solve a debt problem with more debt. Eventually, we are going to have to pay the piper.
Truer words have never been spoken, Quinn. The bill that’s now before us would have been much less painful to retire if the Fed would have just bit the bullet and taken its medicine back in 2008.
The FED will do what it always does:
First Lower Interest Rates
; Second, resume QE, Third, Print.
I believe in a balanced portfolio, but I also believe that before they finally destroy our Dollar it will actually, and for a short period of time, get very strong relative to all other fiat currencies. Flight to safety: cleanest dirty shirt and all.
Agree with you 100%, Kid.
Right before the entire system implodes, I expect the dollar index to, ironically, skyrocket as everyone abandons the other currencies and runs to the dollar in sheer panic. Then the dollar dies. Think of a sinking ship right before it goes under; the bow lifts up very high out of the water before plunging for good into the watery depths of Davy Jones’ Locker.